Providing coverage of Alaska and northern Canada's oil and gas industry
March 2018

Vol. 23, No.10 Week of March 11, 2018

Fairbanks LNG storage project moves on

Next major step in the Interior Energy Project is underway; LNG supply expansion on hold until purchase of Pentex by IGU completes

Alan Bailey

Petroleum News

The construction of a new 5.25 million gallon liquefied natural gas storage facility in Fairbanks began in December and is moving ahead, with an anticipated completion date in the fall of 2019, Dan Britton, president and CEO of Pentex Natural Gas Co, told the board of the Alaska Industrial Development and Export Authority on March 1.

Excavation of the storage tank site has been completed, and much of the subsurface structure, including an insulation layer that will lie under the concrete tank foundation, has been installed, Britton said.

The storage tank construction comes as part of the Interior Energy Project, a project to bring increased supplies of natural gas to Fairbanks and its surrounds. The idea is to make energy in Fairbanks more affordable, while also encouraging the use of natural gas as a means of helping to improve air quality in the city during the winter.

Utility consolidation

Currently LNG for delivery to Fairbanks is manufactured at Pentex’s Titan plant near Point MacKenzie on Cook Inlet and shipped by road trailer to Fairbanks. Fairbanks Natural Gas, a Pentex subsidiary, stores and gasifies the LNG for the distribution of gas to customers in central Fairbanks. Interior Gas Utility, a utility owned by the Fairbanks North Star Borough, does not currently have a gas supply. IGU has agreed to purchase Pentex, with the sale scheduled to complete by the end of May. Following completion of the sale, IGU will operate as a single, integrated utility for the whole of the Fairbanks region. Completion of the sale is, in part, contingent on Regulatory Commission of Alaska approval of the utility merger.

The idea is that IGU will expand the LNG supply for Fairbanks. The IEP has negotiated a flexible gas supply agreement with Hilcorp Alaska that will enable a ramp up of the supplies, as necessary. Pentex has acquired some new, large LNG trailers in support of the ramp up.

Gene Therriault, AIEDA’s IEP team leader, told the AIDEA board that moving ahead with the expansion of the LNG supply is currently on hold, pending completion of the Pentex purchase by IGU. The expectation is that the combined utility will issue a request for proposal for an increased LNG supply through the expansion of the Titan plant or from some other source, Therriault said.

Distribution system build out

In 2015, as part of an earlier phase of the IEP, both FNG and IGU started to build out their gas distribution pipeline networks in Fairbanks, in anticipation of an expanded gas supply for the city. And, regardless of any LNG plant expansion, the implementation of the new LNG storage facility, now under construction, would provide the capacity to connect new consumers through the expanded distribution system. The greatly expanded LNG storage capacity would enable IGU to warehouse gas produced in the summer for use in the winter. In addition, the new facility would provide more of a backstop of reserve gas to assure continuity of supplies for more consumers.

There is also a strong incentive to move ahead with construction of the new storage facility - if the facility is operational and in use by Jan. 1, 2020, it will qualify for a state tax credit.

LNG storage tank

Britton told the AIDEA board that Pentex had awarded the contract for the construction of the storage facility to Preload Cryogenics from the Boston area. Preload has subcontracted various components of the work, with much of the work being conducted by Alaska-based contractors. Although the original concept for the tank had involved a single tank wall, the tank being constructed is of a double-walled design, a design that provides a higher level of security, should the tank develop a leak. Britton told the board that Preload Cryogenics had quoted the double-wall design at a comparable price to a single-wall model.

“That’s a really big improvement for our security and safety,” Britton said.

Construction of a 100-foot diameter LNG storage facility in Interior Alaska involves some particular challenges. The inner tank will be fabricated from 9 percent nickel plate, to prevent the steel becoming brittle when in contact with the LNG. The outer tank will be constructed from concrete. And a combination of insulation and flat-loop evaporators will maintain the ground under the foundation at an appropriate temperature, thus ensuring the stability of the foundation.

Need to increase gas demand

A critical factor in the economics of the IEP is the number of Fairbanks businesses and residents that end up using natural gas to heat their buildings - the higher the number of consumers, the lower the unit cost of the gas. Britton said that since there is now a timeline for starting the gas supply expansion, it is now possible to better communicate with potential customers about their future options. Therriault said that there is a plan to hire a conversion specialist in Fairbanks, to spearhead efforts to encourage people to use natural gas.

Therriault also commented that the Alaska Energy Authority is helping municipalities with the implementation of Property Assessed Clean Energy, or PACE, arrangements that can bring low cost financing to businesses wishing to convert to natural gas use. In addition, the state Legislature is considering legislation to enable on-bill financing, a convenient means for consumers to pay gas conversion costs. Another option being monitored involves obtaining some funding for conversion assistance through an Environmental Protection Agency plan for addressing air quality non-attainment.

Financing for the IEP comes from a $57.5 million state capital appropriation, $125 million in SETS loans from the Sustainable Energy Transmission and Supply Development Fund, and $150 million in AIDEA bonding. The state Senate has passed a bill extending the deadline for issuing bonds for the project until June 30, 2023 - the House is considering an identical bill.

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